Memorandum submitted by Atris Business
Innovations
A. THE EXTENT
OF THE
"GENERATION GAP"
1. What are the latest estimates of the likely
shortfall in electricity generating capacity caused by the phase-out
of existing nuclear power stations and some older coal plant?
How do these relate to electricity demand forecasts and to the
effectiveness of energy efficiency policies?
Phase out of nuclear power will reduce UK generating
capacity by some 12GW. Under current policies, the gap can be
filled with new gas-fired generation at relatively short notice.
Gas is a traded commodity, and can be purchased by those willing
to pay the most.
However, a shortfall in non-gas generating capacity
will have an impact on both global and UK gas prices. It is therefore
unwise to rely on gas to supply such a large proportion of the
UK's electricity.
B. FINANCIAL
COSTS AND
INVESTMENT CONSIDERATIONS
2. What are the main investment options for
electricity generating capacity? What would be the likely costs
and timescales of different generating technologies?
— What are the likely construction
and on-going operating costs of different large-scale technologies
(eg nuclear new build, CCGT, clean coal, on-shore wind, off-shore
wind, wave and tidal) in terms of the total investment required
and in terms of the likely costs of generation (p/kWh)? Over what
timescale could they become operational?
Covering the major sources of supply:
Nuclear
Nuclear plant based on AP-1000 would provide
electricity at 2-3p per KWHr, based on manufacturers estimates.
The fact that the industry has significantly
under-estimated costs does not mean they will do so again. A few
decades ago, underestimation of capital projects was routine (recall
the Humber Bridge). Estimation techniques have approved across
all structure builds to the point where a 20% over estimation
is considered a disaster.
Furthermore, early UK reactors were pioneering—there
was no previous experience of nuclear power.
Hence one can assume that the BNFL-Westinghouse
figures are broadly accurate, which makes the UK White Paper plainly
wrong to rule out nuclear power on grounds of competitiveness.
Gas
Gas prices are quoted in million BTU, and currently
stand at about $8. This is equivalent to 45p per Therm, or 1.54p
per KWhr.
A chart here http://www.oilandgas.org.uk/issues/gas/ukooaresponsegasprices.pdf
gives historical figures between 11 (1996) and 40p (end 2004)
per Therm.
It seems that the latest gas turbines are about
50% efficient. So the fuel cost of gas electricity is currently
about 3.1p per KWhr, and has varied between .75p and 2.75p. To
this needs to be added capital and non-fuel operating costs. It
appears the cost of gas-generated electricity is currently about
4p per KWhr. On top of this need to be added the cost of carbon
credits.
The industry predicted stable or falling prices
in 2004 (see http://www.oilandgas.org.uk/is sues/gas/ilexreport.pdf).
Since then prices have risen. The gas industry has an incentive
to predict falling prices to prevent investments in wind and nuclear.
If one assumes gas prices stay at $8 (and given
no one really has a clue here, it seems prudent for a mid-case
scenario, though over a period of decades, prices will probably
rise substantially), then gas is not a competitive choice for
electricity generation. This is bad news for the UK, which has
put most of its eggs in the gas basket.
Offshore Wind
Estimates range from 3p to 5.5p per KWhr (Royal
Academy of Engineering). Atris has not studied these figures in
depth, but would assume that with sufficient innovation from the
offshore industry, prices could be towards the lower end of this
scale.
A critical area for wind electricity generation
is the development and deployment of small-scale gas powered fuel
cells, providing Combined Heat and Power. It is likely that within
a decade, these could be a wide spread alternative to domestic
and office boilers. They will in effect produce electricity as
a by-product of heat. Hence, when a building needs heat, they
can produce electricity at a cost of the price of gas. In summer,
when the heat is wasted, the electricity is far more expensive.
However, widespread deployment of these would provide a huge source
of standby generating capacity. This in turn would enable wind
energy to be deployed more widely.
On shore wind may be cheaper than offshore wind,
but has limited scope to make a major contribution to the UK's
energy supply.
Severn Barrage
This has been assessed for the DTI. Costs are
estimated at under 6p per KWhr. This is not economically viable
by itself. However, in the light of other benefits, the scheme
should certainly be considered.
— With regard to nuclear new build,
how realistic and robust are cost estimates in the light of past
experience?
Past experience cannot be used as a guide. If
it were, no suspension bridge would ever have been built after
the Humber Bridge.
What are the hidden costs (eg waste, insurance,
security) associated with nuclear? How do the waste and decommissioning
costs of nuclear new build relate to the costs of dealing with
the current nuclear waste legacy, and how confident can we be
that the nuclear industry would invest adequately in funds ring-fenced
for future waste disposal?
The costs mentioned above have been internalised.
The Government should raise a levy on nuclear power to fund the
decommissioning costs no one can ensure that operators will remain
solvent over 60 years.
— Is there the technical and physical
capacity for renewables to deliver the scale of generation required?
If there is the capacity, are any policy changes required to enable
it to do so?
It is feasible, however, wind turbine manufacturers
are struggling to meet existing demand. 25GW of offshore capacity,
providing an average of 10GW, by 2030 is quite feasible.
— What are the relative efficiencies
of different generating technologies? In particular, what contribution
can micro-generation (micro-CHP, micro-wind, PV) make, and how
would it affect investment in large-scale generating capacity?
As mentioned above, domestic scale fuel cells
providing CHP would be of immense value. In Winter, they will
provide electricity at a marginal cost of the price of gas, which
is currently about 1.54p per KWhr. Where the heat is not used,
one has to account for the generating efficiency. If this is 40%
(a likely figure for gas powered fuel cells) then this is 3.85p.
This latter figure is not competitive for base load electricity,
but may provide highly valuable, immediately available capacity.
3. What is the Attitude of Financial Institutions
to Investment in Different Forms of Generation?
— What is the attitude of financial
institutions to the risks involved in nuclear new build and the
scale of the investment required? How does this compare with attitudes
towards investment in CCGT and renewables?
Financial institutions are understandably nervous
about the scale and uncertainties. However, it is likely that
large players such as Eon and EDF could obtain sufficient finance.
— How much Government financial support
would be required to facilitate private sector investment in nuclear
new build? How would such support be provided? How compatible
is such support with liberalised energy markets?
Financial Institutions, Constructors and Operators
should be able to bear the construction and operating risks, and
most of the revenue risks. However, the Government needs to remove
some of the regulatory risks.
In particular, costs and risks before construction
need to be reduced. The planning process needs to be simplified
significantly—there can be no repeat of the Terminal 5 enquiry
costs.
The Government should also bear any exceptional
security costs required during construction and operation, and
protect constructors, operators and investors in the event of
"animal rights" style protests. As with "animal-rights"
protests, it is society, rather than the generator that is largely
responsible for these costs.
— What impact would a major programme
of investment in nuclear have on investment in renewables and
energy efficiency?
Probably none. There is a need for about 40GW
of new generating capacity over the next few decades. Renewables,
Nuclear, and Energy Efficiency should all have a role. At present,
gas is so dominant, that any investment in nuclear will be at
the expense of imported gas.
C. STRATEGIC
BENEFITS
4. If nuclear new build requires Government
financial support, on what basis would such support be justified?
What public good(s) would it deliver?
A number of benefits:
— Security of supply for a period of
60 years
— Reduced CO2 outputs, including
the ability to meet Kyoto targets and longer term targets.
— Improved Balance of payments. On
current policies, by 2030, gas imports will cost several tens
of billions of pounds per year.
— Reduced funding to oil exporting
countries. A lot of this money is used to fund terrorism, or to
pursue aggressive foreign policies, or to delay sensible economic
reforms.
— The ability to meet rising demand
for electricity. Even with conservation measures, demand for electricity
is unlikely to fall. If transport moves from oil to electricity,
then demand could even rise.
To what extent and over what timeframe would nuclear
new build reduce carbon emissions?
Each GW of average output will reduce CO2
emissions by about 3 million tons per year. This will continue
over its 60-year operating life.
To what extent would nuclear new build contribute
to security of supply (ie keeping the lights on)?
By 2010, the UK will be hugely dependent on
gas supplies. By 2020, this is likely to come in large part from
the former Soviet Union and the Middle East. Neither of these
areas is noted for its stability. Gas from the former Soviet Union
will come by pipeline, and pipelines are very hard to secure.
It might be that the easiest way to impose terror on Britain in
2020 will be to blow up a pipeline in Eastern Europe.
Beyond 2020, it is impossible to predict the
prices of oil and gas. However, there are some commentators who
believe that oil production will peak within a decade. If this
is the case, then the price of oil would increase to well over
$100 per barrel. The price of gas would follow. The lights might
stay on, but electricity generation from gas might cost over 10p
per KWHr.
The scenario enclosed with this response would
make such a threat less severe, and therefore less likely [not
printed].
— Is nuclear new build compatible with
the Government's aims on security and terrorism both within the
UK and worldwide?
For the reasons above, yes. As long as nuclear
power stations and waste storage sites are well guarded, then
the security is improved over a scenario relying on gas imports.
Gas pipelines and LNG terminals are much easier
terrorist targets than nuclear power stations, and as such would
produce a higher security risk than the alternative nuclear plants.
It goes without saying that nuclear materials
need to be fully controlled and accounted for, and the whole nuclear
fuel cycle needs to be managed in a secure manner.
5. In respect of these issues [Q 4], how
does the nuclear option compare with a major programme of investment
in renewables, microgeneration, and energy efficiency? How compatible
are the various options with each other and with the strategy
set out in the Energy White Paper?
On current trends, without nuclear, UK generation
in 2030 is likely to be 20% renewables, and 80% fossil fuel.
A build of eight reactors (AP 1000) would provide
about 20% of the UK's capacity. The mix would then be 20% renewable,
20% nuclear, 60% fossil fuel.
The attached scenario proposes generation to
be only 4% fossil, with 30% renewables, and 66% nuclear. In this
scenario, should renewables be more cost competitive, then they
can take share from nuclear [not printed].
Given the current dominant role of gas, nuclear
build up to 66% of capacity is unlikely to have an impact on renewables.
Energy efficiency is not directly related to
generation mix, and should be encouraged regardless of supply
policy.
D. OTHER ISSUES
6. How carbon-free is nuclear energy? What
level of carbon emissions would be associated with (a) construction
and (b) operation of a new nuclear power station? How carbon-intensive
is the mining and processing of uranium ore?
This is not an issue. CO2 payback
is within months of operations, and mining produces much less
than 1% of the CO2 saved.
The suggestion that nuclear power stations,
or wind turbines, cause CO2 are smokescreens for other
objections.
7. Should nuclear new build be conditional
on the development of scientifically and publicly acceptable solutions
to the problems of managing nuclear waste, as recommended in 2000
by the RCEP?
No. There are already scientifically acceptable
solutions to the problems of waste. Public acceptability will
be harder to achieve, but we have this problem whether we proceed
with new nuclear build or not. Dealing with our current waste
is a big, though manageable problem. Adding the waste from eight,
or even 36, new reactors would not add significantly to this problem.
17 August 2005
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